Many small business owners stay so busy making sure their business is running at its full potential, they don’t have time to think about retirement. Even if they had time, retirement is usually linked to getting older, which nobody wants to think about.

I’ve worked in the financial services industry for 13 years in the Tampa Bay area, specializing in retirement planning and retirement income distribution. As you can well imagine, a retirement specialist in Florida stays pretty busy, and I’ve answered my share of questions. I’ve compiled some of the more frequently asked questions about IRA’s, along with the answers, in hopes of making it easier for you when you are ready to think about retirement:

• What’s the difference between an IRA and an annuity?
The assets of an Individual Retirement Account (IRA) are held by a bank or other institution that acts as trustee or custodian, while an annuity is a contract purchased from an insurance company. The annuity does not require a trustee or custodian because it is an insurance contract.

• How much money can one put into an IRA each year?
A taxpayer with earned income or alimony is permitted to contribute the lesser of the maximum annual
contribution limit or 100% of his or her compensation, including alimony, into an IRA each year. Annual contributions to all types of IRA plans require earned income on the part of at least one spouse. The maximum annual contribution limit is $4,000 for taxable years 2005-2007 and $5,000 for 2008. The maximum annual contribution limit for taxable years 2002-2005 was increased by $500 for those who are
50 years of age before the close of the year. This catch-up provision increases to $1,000 for 2006-2010.

• What if my spouse does not work?
If a taxpayer files a joint return and his or her spouse has no earned income or alimony, then a total of the
maximum annual contribution limit may be contributed into an IRA for the spouse as long as the combined
income of both spouses each equal at least the amount of contribution.

• How much of my IRA contribution is tax deductible?
AGI PHASE-OUT RANGES FOR DEDUCTIBLE IRA Year Joint Return Single Head of Household
2005 $70 - 80,000 $50 - 60,000
2006 $75 - 85,000 $50 - 60,000
2007 $80 -100,000 $50 - 60,000
In general, for individuals who are not active participants in an employer sponsored retirement plan,including
Keogh plans or, if married, where neither spouse is an active retirement plan participant, the full IRA contribution may be tax deductible. For taxpayers who do participate in a qualified retirement plan, no IRA
deduction will be allowed for those whose adjusted gross income (AGI) exceeds the amounts from the chart
above.

• If I receive a distribution from my employer’s qualified plan, must I roll the money over to an IRA?
Unless rolled over, distributions are included as taxable income (except for any portion treated as a return of nondeductible contributions) and may be subjected to withholding of 20% for federal taxes. Any such income is also subject to a 10% penalty tax unless the taxpayer has attained age 591/2, is disabled or payment is made in substantially equal installments over the course of your life (or life expectancy) or the joint lives (or life expectancies) of the person and beneficiary.

• What is the penalty for excess IRAcontributions?
If contributions (deductible and nondeductible) in excess of the amount allowed are made to an IRA, an excise tax equal to 6% of the excess contribution is imposed until the excess is withdrawn or used to reduce
later years’ contributions.

• When must I begin withdrawals from my IRA?
Withdrawals from an IRA must begin before April 1, of the year after the owner attains age 701/2. These
minimum withdrawal rules do not apply to Roth IRAs. The rules relating to how distributions may be structured are substantially the same as the rules for qualified plans except the qualified joint and survivor
annuity provisions do not qualify. If you haven’t started planning for your retirement, don’t let the thoughts of getting older, or being too busy keep you from getting started. After all, retirement is not a bad word and with the proper planning, you may even look
forward to it.

Christine Cooper, MS, CLTC owns Cooper Financial
Services in Lutz, Fla., and can be reached at
(813) 948-3143 or chrismm4u@verizon.net.